Gainesboro Machine Tools Corporation Case Study Prezista

James Gaines and David Scarboro founded Gainesboro Corporationin the year 1923 focusing their business on designing andmanufacturing machine parts. By 19!" the company haddeve#oped a reputation as an innovative producer of industria#machinery and machine too#s" $hich made Gainesboro stood outas an industry #eader as press and mo#d companies $ere most#ysma## #oca# or regiona# %rms $ith #imited c#iente#e.&n the ear#y 19'(s" Gainesboro ventured into a ne$ %e#d)computer*aided design and computer aided manufacturing +C,D-C,/. Gainesboro $or0ed $ith a sma## soft$are company anddeve#oped manufacturing meta# parts by responding to computercommands. Severa# years #ater" Gainesboro merged the soft$arecompany into its operations and perfected the C, euipment$hi#e deve#oping a superior #ine of C,D soft$are and euipment. &nthe C,D- C, industry" #arge %rms #i0e ,utodes0" &nc." CadenceDesign" and Synopsys" &nc. sets the standard for C,D-C,. &n the#ate 199(s and ear#y 2(((s" the techno#ogica# advances andaggressive venture capita#ism fue#ed the entry of high#yspecia#ied" cutting edge C,D- C, %rms. rom there" Gainesborofe## behind some of its competition in the deve#opment of user*friend#y soft$are and the integration of design and manufacturing.,s a resu#t" revenues s#ipped from a high of 4911 mi##ion in 199' to4! mi##ion in 2((5.Gainesboro too0 t$o separate approach to tac0#e thedec#ination of revenues and to improve the $ea0 margins6a/Devoted a greater share of its research anddeve#opment budget to C,D-C, in an e7ort to re*estab#ishits #eadership in the %e#db/8he company a#so $ent for t$o massiverestructurings6i/&n 2((2" the company so#d t$ounpro%tab#e #ines of business $ith revenues of 4!1mi##ion" so#d t$o p#ants" e#iminated %ve #eased

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Product Overview

In mid-September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM (computer aided design and manufacturing) equipment manufacturer must decide whether to pay out dividends to the firm's shareholders, or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising, and change its corporate name to reflect its new outlook. The case serves as an omnibus review of the many practical aspects of the dividend and share buyback decisions, including (1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions. This case can follow a treatment of the Miller Modigliani dividend-irrelevance theorem and serves to highlight practical considerations in setting dividend policy.